The
petitioners challenged before the High Court the levy of excise duty on the
weight of the yarn sized for the purpose of weaving them into fabrics. The High
Court held that no duty could be levied on the weight of the sizing material
contained in yarn, and directed that the duty should be refunded since it has
been levied not on the basis of yarn at the spindle stage, but on the weight of
the sized yarn.

After
the said judgment, the Central Government by Notification dated 20.2.1982
amended Rules 9 and 49 of the Central Excises and Salt Act, 1944 and Section 51
of the Finance Act, 1982 with retrospective effect. In accordance with the said
Notification, Central Excise Department issued show cause notices to the
petitioners. The constitutional validity of these amendments are challenged by
the petitioners in the present Writ Petitions filed before this Court.

On
behalf of the petitioners, it was contended that their cases were covered by
the decision of this Court in J.K. Cotton Spinning and Weaving Mills Ltd. &
Anr. v. Union of India and Ors., [1988] 1 SCR 700 and that excise duty could be
levied on the weight of the unsized yarn and not on the basis of the weight of
the sized yarn.

Allowing
the petitions, this Court

HELD:
1.1. The Vires of Rules 9 and 49 of the Central Excise Rules, 1944 as well as
section 51 of the Finance Act, 1982 and the retrospective 143 application of
the same has already been upheld by this Court. [145E] 1.2. The sized yam which
is actually put into the integrated process will not again be subjected to
payment of excise duty, for the unsized yam which is sized for the purpose,
does not change the nature of commodity as yarn. Thus excise duty cannot be
levied on the weight of the yarn after the yarn is sized for the purpose of
weaving the same into fabrics. [145G]

13.
Practically nine years have gone by since the show cause notices were issued by
virtue of the same directives which were subject matter of J.K Cotton Mills
case. In view of this peculiar fact it would not be in the interest of justice
if the petitioners are directed to contest the individual show cause notices
issued by the respondents. In order to avoid multiplicity of proceedings
involving time and expense, the show-cause notices in all these cases are
quashed. [148F-G] J.K Cotton Spinning and Weaving Mills Ltd & Anr. v. Union of India & Ors., [1988] 1 S.C.R. 700, applied.

The
Judgment of the Court was delivered by YOGESHWAR DAYAL J. This order will
dispose of the aforesaid writ petitions under Article 32 of the Constitution of
India. All these cases come under Item 18.1 and/or 18 III and/or 18E of the
Tariff contained in the schedule attached to the Central Excise and Salt Act
1944 (hereinafter referred to as 'the Act'). For facility of reference we are
giving the facts of the case of Civil Writ Petition No. 3 of 1983.

144
This Writ Petition is stated to be covered by the decision of this Court in J.K
Cotton Spinning and Weaving Mills Ltd. & another v. Union of India and
others, [1988] 1 S.C.R. 700 and the surviving prayer in the writ petition is to
declare that the duty of excise in respect of Tariff Item Nos. 18 (A) (a), 18
(III) (ii) and 18E is to be levied and collected on the weight of the unsized
yarn and not on the basis of the weight of the sized yarn".

Before
we deal with the objections of the learned counsel for the respondents, it
would be useful to examine the points which were involved in the aforesaid case
of J.K Cotton Mills. The appellants in the said case had a composite mill
wherein it manufactured fabrics of different types. In order to manufacture the
said fabrics, yarn was obtained at an intermediate stage. The yarn so obtained
was further processed in an integrated process in the said composite mill for
weaving the same into fabrics. The appellants did not dispute that the
different kinds of fabrics which were manufactured in the miff were liable to
payment of excise duty on their removal from the factory.

They
also did not dispute their liability in respect of yarn which was also removed
from the factory. It was the contention of the appellants therein that no duty
of excise could be levied and collected in respect of yam which was obtained at
an intermediate stage and, thereafter subjected to an integrated process for
the manufacture of different fabrics. On a writ petition, by those appellants,
the Delhi High Court by its judgment dated 16th October, 1980 held that yarn obtained and further
processed within the factory for the manufacture of fabrics could not be
subjected to duty of excise. It was the case of the appellants that in spite of
the said decision of the Delhi High Court, the Central Board of Excise had
wrongly issued a circular dated 24th September, 1980 purporting to interpret
Rules 9 and 49 of the Central Excise Rules, 1944 (hereinafter referred to as
the Rules') and directing the subordinate excise authorities to levy and
collect duty of excise in accordance therewith. In the said circular, the Board
had directed the subordinate excise authorities that use of goods in
manufacture of another commodity even within the place/premises that have been
specified in this behalf by the Central Excise Officers in terms of the powers
conferred under Rule 9 of the Rules, will attract duty". As the said
circular was being implemented to the prejudice of the appellants, they filed
the writ petition before the Delhi High Court, inter alia, challenging the
validity of the said circular.

During
the pendency of the writ petition in the Delhi High Court, the 145 Central
Government by Notification No. 20/82-C.E. dated 20th February, 1982 amended
Rules 9 and 49 of the Rules. Section 51 of the Finance Act provides that the
amendments in Rules 9 and 49 of the Rules shall be deemed to have, and to have
always had the effect on and from the date on which the Rules came into force
i.e. 28th February,
1944. After the said
amendments of the Rules with retrospective effect, the appellants amended the
Writ petition and challenged the constitutional validity of Section 51 of the
Finance Act, 1982 and of the amendments to Rules 9 and 49 of the Rules.

The
High Court came to the conclusion that section 51 of the Finance Act, 1982 and
Rules 9 and 49 of the Rules, as amended, were valid. It was further held that
the retrospective effect given by Section 51 of the Finance Act, 1982 will be
subject to the provisions of Sections 11A and 11B of the Act. It was further
held that the yam which is produced at an intermediate stage in the mill of the
appellants therein and subjected to the integrated process of weaving the same
into fabrics, will be liable to payment of excise duty in view of the amended
provisions of Rules 9 and 49 of the Rules. But the sized yam which is actually
put into the integrated process will not again be subjected to payment of
excise duty for, the unsized yarn, which is sized for the purpose, does not change
the nature of the commodity as yarn. The Writ Petition was accordingly allowed
in part, as stated aforesaid, and it was this decision which came up in appeal
before this Court. This Court agreed with the Delhi High Court and upheld the vires
of Rules 9 and 49 of the Rules as well as Section 51 of the Finance Act, 1982.
This Court also agreed with the High Court that the retrospective effect given
by section 51 of the Finance Act, 1982 will be subject to the Provisions of
Sections 11A and 11B of the Act. This Court also agreed with the view of the
High Court that the yarn which is produced at an intermediate stage in the mill
of the appellants and subjected to integrated process of weaving the same into
fabrics, would be liable to payment of excise duty in view of the amended
provisions of the Rules, But, this Court further agreed with the High Court,
the sized yarn which is actually put into the integrated process will not again
be subjected to payment of excise duty for, the unsized yarn, which is sized
for the purpose does not change the nature of the commodity as yarn. This Court
observed at pages 720 and 721 of the report as under:- "In the instant
case, the appellants are liable to pay excise duty on the yarn which is
obtained at an intermediate stage and, thereafter, further processed in an
integrated process for weav- 146 ing the same into fabrics. Although it has
been alleged that the yam is obtained at an intermediate stage of an integrated
process of manufacture of fabrics, it appears to be not so. After the yarn is
produced it is sized and, thereafter, subjected to a process of weaving the
same into fabrics. Be that as it may, as we have held that the commodity which
is obtained at an intermediate stage of an integrated process of manufacture of
another commodity, is liable to the payment of excise duty, the yarn that is
produced by the appellants is also liable to payment of excise duty. In our
view, the High Court by the impugned judgment has rightly held that the
appellants are not liable to pay any excise duty on the yarn after it is sized
for the purpose of weaving the same into fabrics. No distinction can be made
between unsized yarn and sized yarn, for the unsized yarn when converted into
sized yarn does not lose its character as yarn." The petitioner herein on
the other hand approached the Gujarat High Court and the Gujarat High Court by
its judgment dated 30th July, 1981 had, before the issuance of the impugned
circular dated 24th May, 1982, taken the view that no duty can be levied on the
weight of sizing material contained in yarn, falling under Tariff Item no.
18-111 or 18-E and directed that the duty levied should be refunded because the
duty has been levied not on the basis of yam at the spindle stage, but on the
weight of the sized yarn.

After
the decision of the Gujarat High Court the Central Government had amended Rules
9 and 49 of the Rules and Section 51 of the Finance Act, 1982, had made them
effective retrospectively.

The
present writ petition filled in this Court had inter alia pleaded that the
retrospective amendment of Rules 9 and 49 of the Rules as well as Section 51 of
the Finance Act, 1982 be declared as ultra vires of the Constitution. This
Court upheld the validity of the Section as well as the retrospective
applicability of the Rules but took the view that this would be subjected to
the provisions of Sections 11A and 11B of the Act and at the same time declared
that the appellants were not liable to pay excise duty on the yarn after it is
sized for a purpose of weaving the same into fabrics.

It
will be noticed that under items 18.1, 18.III and 18E the measure is "per
kilogram". At this stage items 18.1, 18.111 and 18E of the Tariff may be
noticed 147 "18. I. Man-made fibres, other than mineral fibres :

Yam,
in which man-made fibre of cellulosic origin predomi- nates in weight and, in
or in relation to the manufacture of which any process is ordinarily carried on
with the aid of power (i) not containing, any manmade fibres of non-cellulosic
origin.

six paise
per count per kilogram (ii) containing man-made fibres of non-cellulosic
origin.

Eighteen
Rupees per kilogram "18E. Non-cellulosic Spun Yam: Spun (discontinuous)
yarn, in which man-made fibres of noncellulosic origin, other than acrylic fibre,
predominate in weight and, in or in relation to the manufacture of which any
process is ordinarily carried on with the aid of power.

Twenty-four
rupees per kilogram.

148 Explanation
: Explanation III under sub-item III of item No. 18 shall, so far as may be,
apply in relation to this item as it applies in relation to that item." It
will be noticed from the aforesaid items that the measure for imposition of
excise duty is by weight "per kilogram" in all the three items,
namely-18.1, 18.111 and 18E.

Therefore,
the aforesaid decision in J.K. Couon Mills will be applicable to all types of
cases under Items 18.1, 18.111 and 18E. After the decision of the Gujarat High
Court, instead of granting the refund, the Superintendent of Central Excise,
Range IV, Division V, Ahmedabad, issued impugned notices, collectively annexed
as Annexures 'B' and 'C' to the present writ petition in pursuance of the
directives dated 24th May, 1982 which are subject matter of challenge in the
present writ petition.

On
behalf of the respondents Mr. Ganguly learned counsel submitted that this Hon'ble
Court ought not to entertain the present writ petition under Article 32 of the
Constitution.

He,
however, could not dispute that the matter is directly covered by the decision
of this Court in the aforesaid case of J.K Cotton Mills.

These
petitions were admitted to hearing in view of the pendency of the aforesaid
appeal in the case of J.K Cotton Mills and in view of the decision of the Delhi
High Court which was appealed against in the aforesaid case of J.K Couon Mills.
Practically nine years have gone by now and the impugned show cause notices
have been issued by virtue of the same directives which were subject matter of
the aforesaid case of J.K.cotton Mills. In view of this peculiar fact it would
not be in the interest of justice if the parties are directed to contest the
individual show cause notices issued by the respondents in view of the
aforesaid directives. In order to avoid multiplicity of proceedings involving
time and expense, we quash the impugned notices in all the cases.

The
result is that all the aforesaid writ petitions are accepted and the impugned
show cause notices are quashed.